Kennedy-Wilson - Q2 2024
August 8, 2024
Transcript
Operator (participant)
Good day, and welcome to the Kennedy Wilson Second Quarter 2024 Earnings Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Daven Bhavsar, Head of Investor Relations. Please go ahead.
Daven Bhavsar (Head of Investor Relations)
Thank you and good morning. Thank you for joining us today. Today's call will be webcast live and will be archived for replay. The replay will be available by phone for one week and by webcast for three months. Please see the investor relations website for more information. With me today are Bill McMorrow, CEO, Matt Windish, President, Justin Enbody, CFO, and Mike Pegler, President of Europe. On this call, we will refer to certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted Net Income. You can find a description of these items, along with the reconciliation of the most directly comparable GAAP financial measure and our second quarter 2024 earnings release, which is posted on the investor relations section of our website. Statements made during this call may include forward-looking statements.
Actual results may materially differ from forward-looking information discussed on this call due to the number of risks, uncertainties, and other factors indicated in reports and filings with the Securities and Exchange Commission. I would now like to turn the call over to our chairman and CEO, Bill McMorrow.
William McMorrow (CEO)
Thank you, Daven. Good morning, everybody, and thank you for joining our call. Yesterday, we reported our results in the second quarter and the first half of 2024, which highlighted improving operating fundamentals in our multifamily portfolio and solid progress on our key initiatives during what has been a challenging 24-month period of time for real estate, given that inflation rates were at a 40-year high and interest rates at a 22-year high. We saw continued momentum in Q2 within our investment management business and deployed $2 billion of new capital throughout the first half of the year. The deployment includes $1.7 billion through our credit platform, which fully related to the construction of new, high-quality, market-rate, multifamily and student housing, made to best-in-class sponsors, and $300 million on multifamily and industrial acquisitions.
We also continue to finish and stabilize our development and lease-up portfolio, and in the quarter, stabilized 5 multifamily communities, which added $16 million to our estimated annual NOI. We have only 2 remaining active market rate developments. In total, our development and lease-up portfolio is expected to add $70 million in estimated annual NOI upon stabilization. With our developments largely finishing, our capital spend on development has dropped from averaging $150 million per year in 2022 and 2023 to only $10 million remaining to be spent in the second half of 2024. As a result of our Q2 activity, our estimated annual NOI grew by 5% to $485 million. AUM, Assets Under Management, grew to $27 billion and is annualizing at a 16% growth rate.
Fee-bearing capital grew to a record $8.7 billion, with the ability to grow to $15 billion, including $2.9 billion of future fundings from previously originated and closed construction loans, and the investment of non-discretionary capital that is available to invest. Turning to market conditions, we have seen improving liquidity throughout the year, including several large portfolio transactions within the U.S. apartment sector, which were recently completed or announced, highlighting the strong institutional demand for high-quality multifamily assets. While interest rates have been a headwind for real estate over the last few years, we've begun to see significant beneficial shifts. In the U.S., the ten-year bond, as most of you know, was declined by 100 basis points in touching 5% in October 2023.
In Europe, the Bank of England cut rates last week for the first time in four years, and the ten-year bond in Ireland today sits at 2.7%. Versus, I might add, it was close to 16% when we first went there in 2010. Further anticipated decreases in the rates by the Fed also provide a supportive backdrop for our valuations and increases of our portfolio. A lower cost of capital and lower base rates should help increase transaction volumes and increase our ability to find opportunities to deploy capital and to realize additional cash monetizations. This bodes well for our business, where we have created a unique platform that can scale through investing in both real estate equity and debt.
I'm excited about our current positioning and the numerous opportunities we have to expand our assets under management, with a focus on the following areas. First, growing our investment management platform. Our track record spans over three decades, in which we have navigated many different cycles and at the same time, grown our relationship network, which expands from the U.S. to Canada, Europe, and across Asia, to include some of the largest sovereign wealth funds, insurance companies, and other large institutional investors around the world. This includes our partners in Japan, where we recently reopened our office, and where our history dates back to when we established Kennedy Wilson Japan back in 1994. We continue to see a strong desire from our partners to invest with KW in real estate, debt, and equity in the U.S., United Kingdom, and Ireland.
I'm very confident in our ability to continue raising further third-party capital to grow our investment management business. We are currently focused on three key products. First is rental housing, where our portfolio of approximately 60,000 units includes 22,000 units being financed through our construction loan platform, and over 38,000 multifamily units, in which we have an approximate 56% ownership interest. Renter fundamentals remain very healthy, as there remains a shortage of housing throughout the U.S., U.K., and Ireland. In the U.S., multifamily demand for largely suburban portfolio has remained strong, while supply starts have dropped significantly. We also have a very successful track record of investing in and building high-quality rental housing in Dublin and the U.K., and we continue to evaluate opportunities in those regions. Second, we look to continue growing our credit platform, where we are generating solid risk-adjusted returns for our shareholders.
Q2 marked the one-year anniversary of our acquisition of a $4.1 billion construction loan portfolio from PacWest Bank. Since then, the PacWest construction lending team that joined KW has integrated seamlessly within our KW culture, while completing $1.9 billion of multifamily and student housing construction originations with very high-quality institutional sponsors. We have a strong pipeline of $600 million-$700 million that is signed up and is currently in the process of closing, which will take our closings to $2.7 billion since the acquisition. And third, we look to continue building on our existing 12 million sq ft of logistics. We acquired two industrial platforms in the quarter, totaling $180 million, one in the U.S. and one in the United Kingdom, and we are evaluating several new opportunities in our pipeline in both regions.
Our second key initiatives relates to our asset sale plan. In July, we sold a retail center in Spain, which was our last wholly-owned asset in the country, and generated $35 million of cash to KW. This brings our year-to-date total through the end of July to $330 million of cash, generated from asset sales, non-core assets, and loan repayments. We have a strong disposition pipeline for the second half of the year, with proceeds to be used for reducing our unsecured debt and for future co-investment opportunities. I want to thank our entire organization for their hard work, as we have continued working all as one team across all geographies and business lines, which has set up a firm foundation for the next phase of growth at Kennedy Wilson.
With that, I'd like to turn the call over to our CFO, Justin Enbody, to discuss our financial results.
Justin Enbody (CFO)
Thanks, Bill. I'll start by reviewing our financial results and then discuss our balance sheet. Investment management revenue grew by 37% to $26 million in Q2, driven by completing nearly $1 billion in new originations in our credit platform, as well as higher levels of fee-bearing capital. Baseline EBITDA grew by 5% to $105 million. We saw minor changes in the values of our unconsolidated portfolio in the quarter, and we saw overhead costs go down by 9% year to date. Additionally, post-quarter end, as Bill mentioned, we divested in the largest asset we held in Spain, and with that, we'll be closing our Spanish office. In summary, our GAAP net loss totaled $0.43 per share in Q2, which includes $0.46 per share of non-cash items, including depreciation and amortization, fair value, and share-based compensation.
Adjusted EBITDA totaled $79 million for Q2, and $283 million for the year. Now turning to our balance sheet and debt profile. At quarter end, we had $367 million of consolidated cash. We paid down our line of credit by $67 million in Q2, and today, we have $172 million drawn on our $500 million line of credit. Our share of total debt is 98% fixed or hedged, and with a weighted average maturity of five years. We continue to collect cash as a result of our interest rate hedging activities, which is not reflected in our financial statements as an offset to interest expense. In Q2, we collected $11 million of cash, bringing our year-to-date total to $23 million.
Our effective interest rate of 4.6% reflects a 50 basis points saving over our contractual rate as a result of our hedging strategy. Our remaining 2024 debt maturities total $181 million, which are all non-recourse at the property level. In Q3, we refinanced a construction loan at one of our recently completed multifamily projects in Dublin, where the effective rate improved from 6.2% to 4.5%, fixed for five years. We also continued to repurchase stock in the quarter, buying another 600,000 shares, which brought our year-to-date total through July to 1.7 million shares, or approximately 1.2% of our outstanding share count. We have $110 million remaining on our $500 million share repurchase authorization.
With that, I'd now like to turn the call over to our President, Matt Windish, to discuss our investment portfolio.
Matt Windisch (President)
Thanks, Justin. We continue to strengthen the quality of our portfolio as we work through disposing of non-core assets, while at the same time stabilizing brand-new communities. Our stabilized portfolio totals $485 million in estimated annual NOI, which grew by 5% in the quarter. Over the last 5 years, our portfolio has continued to shift towards multifamily, credit, and industrial, which have increased from 50% to roughly 70% of our NOI. We have also sold down our retail office and hotel portfolios, which 5 years ago accounted for 50% of our portfolio versus approximately 30% today. In total, our 38,000-unit multifamily business has grown to 61% of our stabilized portfolio, producing $525 million of estimated annual NOI at the property level, of which KW's share is $294 million.
We have 2,700 units in our lease-up and development pipeline, which we expect to add $29 million to estimated annual NOI at stabilization. Our U.S. multifamily portfolio has benefited, as a result of our asset management initiatives, where we are focused on driving operational efficiencies and enhancing our assets, as well as strong demand from an overall shortage of homes for sale and the high cost of homeownership. These drivers resulted in same property occupancy growth of 1.9%, revenue growth of 3.6%, and NOI growth of approximately 3%. Overall, portfolio occupancy stood at 94%. On the expense side, rising insurance costs reduced our same store NOI results in Q2 by approximately 50 basis points. However, we expect that our insurance premiums will be flat to down in the second half of the year based on our July renewals.
Our market rate apartment portfolio in the U.S., which is over 90% suburban, saw blended leasing spreads of 2.6%, similar to what we are seeing in July, and we ended the quarter with a loss to lease totaling 4%. Turning to our regional highlights. In our California portfolio, we continued to make great progress working through delinquencies and releasing units. In Q2, we saw occupancy increases, lower bad debt, and stable operating expenses, leading to NOI growth of 5% across our California portfolio. In Northern California, bad debt dropped to the lowest level in two years. The Pacific Northwest also delivered an impressive 4% NOI growth, as occupancy grew by 1.4%, while our value-add initiatives in this region continued to positively impact our results.
In the Mountain West region, we saw occupancy improve by 2%, leading to revenue growth of 3% and NOI growth of 1%. Our portfolio here is well diversified across six states. Nevada and New Mexico were the strongest in our portfolio, with 9% and 6% NOI growth, respectively. Our Arizona properties produced NOI growth of 6%, and in Utah, we saw NOI growth of 3%. In Idaho, we have seen supply impact our rental growth, although we anticipate much less new supply coming online in the years ahead. We continue to have conviction in these markets, where our portfolio offers an attractive, lower-cost alternative to higher-rent units in higher-tax, more densely populated cities. Our Mountain West portfolio's average rents are roughly $1,600 per month, and we believe these markets are set up for solid growth as supply pressures subside.
Moving over to Dublin, our portfolio there remains in strong demand. In Q2, we stabilized two multifamily projects in Dublin, Coopers Cross Residential and The Grange, which totaled 758 units. These two properties added approximately $10 million to estimated annual NOI. We have a further 232 units undergoing lease-up at Cornerstone, which we anticipate stabilizing in early 2025. Renter fundamentals remain healthy in Ireland as labor market conditions are tight, and there remains a large structural shortage of housing. With regards to our global office portfolio, we saw improving occupancies and lower operating costs lead to 6.5% NOI growth. It is worth noting that U.S. office represents only 6% of our stabilized portfolio, where we have completed approximately 500,000 sq ft of leasing in 2024, with an average term of almost 6 years.
The majority of our office portfolio is located in Dublin and in the UK, where the overall leasing market environment has improved in 2024. In Q2, same property NOI increased by 2.2% in our European office portfolio, driven by slight increases in occupancy and lower operating expenses. Stabilized occupancy in Europe remains healthy at 94%, with a weighted average lease term of 7 years to expiration and 5 years to break. In Dublin, our 9 stabilized properties have less than 5% vacancy, with 5 of the properties 100% leased. We continue to see a flight to quality, which we believe will benefit our portfolio. Fundamentals in our industrial portfolio remain very strong, with our portfolio 98% occupied. In Europe, leasing, leasing completed in the quarter delivered a 44% increase in rents.
Demand from our existing tenants to remain in our properties remains strong, with tenants regularly engaging in early discussions ahead of their lease expiration. In-place rents in Europe remain 19% below market, which allows for us to continue enhancing value as leases mature. Switching gears to our investment management business. As we continue to simplify our balance sheet through non-core asset sales, investment management growth is an important focus as it allows us to generate attractive returns in a capital-light manner. We have successfully grown our fee-bearing capital by 93% over the past three years to a record $8.7 billion. A large portion of our investment management growth has been driven by our credit business, which includes $5.1 billion in outstanding loans and $2.9 billion in future fundings.
Our capital raising efforts span across the globe, with the majority of our capital coming from large institutional insurance companies, sovereign wealth funds, and pensions. Combining these important relationships with an improving interest rate backdrop should strengthen liquidity and improve our ability to deploy capital at scale. In summary, we are emerging from a challenging period of time as a much stronger company positioned for growth. We greatly increased the strength of, strength of our lending capabilities in the last year. We continue to finish and stabilize our developments while recycling capital from our non-core asset sales, strengthening our overall portfolio. And most importantly, we have a well-seasoned and invigorated team on the field, which looks forward to growing the business over the years ahead. So with that, we can open it up to Q&A.
Operator (participant)
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two. The first question comes from Anthony Paolone with J.P. Morgan. Please go ahead.
Anthony Paolone (Executive Director)
Okay, thanks, and good morning. I guess first question as it relates to the, debt platform. It seems like the origination thus far has been mostly on the construction loan side, or maybe, maybe all of it has been, if I recall. But just wondering, you know, what the prospects are for doing other types of maybe longer duration type debt deals or, you know, taking advantage of some of the repayments to, you know, be the vehicle that terms out some of that debt to add some just broader duration to that book.
Matt Windisch (President)
Hey, Tony, this is Matt. It's a great question. You know, we see a great opportunity in the construction lending space within the residential sector, and so that's where our, our primary focus has been. But the team that we both bought and built within KW is a seasoned team of people with expertise not only in construction lending, but in permanent lending, bridge lending, you name it. So we definitely have the capabilities and expertise to expand beyond our current capabilities in the construction lending space. And so we are looking at those opportunities of how we increase the duration on the portfolio and look at longer-term solutions for our, our customers. And we've got, you know, capital partners that are interested in doing that with us.
So it's a good question, and I think you'll see over the next several quarters, an expansion of our business beyond just construction lending.
Anthony Paolone (Executive Director)
Okay, thanks. And then, with regards to development, you know, the program there seems to be, you know, winding down, and it's simplifying the story, you know, overall for you guys. Do you think there are incremental starts in the horizon, or do you think this is, this kind of continues to wind down for a while here?
William McMorrow (CEO)
No, we're really looking at that business in a different way than we have in the past, where we were, you know, a sizable equity partner in all of these deals. And so we have several new projects that we're looking at right now, but where we're taking both of our really experienced teams here in the United States and in Europe, and for lack of a better word, really repurposing them into a construction management business, where similar to what we've been doing with the investment management platform, where we will be 5%-10% investors in these properties, but manage and run all of the construction and earn the normal development fees that you would earn in developing any property.
So we have a—we've been doing this now for 10 years, and we've developed a very, very outstanding team of people in both Europe and here in the United States. And so we don't want to slow the development down where it makes sense, but what we do want to do is do it more in the format of an investment management platform where we're the construction manager.
Anthony Paolone (Executive Director)
Okay, thanks. And then just if I could ask one last one. It seems like you're making progress towards your disposition goals. Just wondering if you can put some brackets around, you know, what all you have in the market, if we should expect anything, you know, more sizable coming or any, you know, exits of other markets or property types or anything?
Matt Windisch (President)
Yep. So you saw that we did sell, you know, our Spanish retail center in Q3, so that's obviously done. But we have a, you know, substantial pipeline of dispositions that we're in various stages.
... of selling. So it's in line with the plan, that we announced late last year, and we're confident we can still hit those numbers. And, you know, for us, in particular, you know, you've seen the shift of, the majority of the assets on the balance sheet being U.S. multifamily. So I think with this disposition program, you'll continue to see that shift, continue.
William McMorrow (CEO)
Yeah, I think, Tony, just to add to what Matt said, it's, it's very, very clear that, you know, one of our core strengths is whether it's in the credit business or the equity side, is the multifamily business, where we now are involved in almost 60,000 units. And so, our view of the housing market is that there's going to be significant opportunities to continue to grow that, that business over time. And so we have very clearly identified the other non-core assets that we want to get out of. And I think to simplify the company in terms of geography, we're only focused on those three markets, the United States, the United Kingdom, and Ireland. And the other side of the equation is the capital that we're raising in various parts of the world.
As we said earlier in the call, we're very, very focused on raising capital now out of Asia, Canada, and Europe. And we're making really, really good progress in all of those markets.
Anthony Paolone (Executive Director)
Got it. Thank you.
Operator (participant)
The next question comes from Jo- Josh Dennerlein with Bank of America. Please go ahead.
Josh Dennerlein (Senior Equity Research Analyst and Director)
Yeah. Hey, guys, just wanted to explore, just like, what's the... You guys include the fair value adjustment and Adjusted EBITDA. I guess, what's the rationale on that? Because I feel like it adds, like, a lot of noise to just, like, the overall earnings power of the company. So just, just why, why do you guys feel it's important to include that?
Justin Enbody (CFO)
I mean, I think historically, you know, it's, as you mentioned, it's been a little bit volatile, and we typically are including everything in that metric, and that's why we introduced Baseline EBITDA to be a more recurring operating metric for the, for the users. So now you can, you know, choose which one you'd like to look at.
Josh Dennerlein (Senior Equity Research Analyst and Director)
Oh, okay. Sorry, I missed that. So that was new for this quarter, the Baseline EBITDA, and that's just-
Justin Enbody (CFO)
Definitely, I think, one or two, I think second or third quarter we've had it, but, you know, that was the genesis of it. So it's, it's a good question, and hopefully, we're just giving you more information.
Josh Dennerlein (Senior Equity Research Analyst and Director)
Okay. Okay. Then, what, so you guys mentioned opening a Japan office, I guess?
William McMorrow (CEO)
Yeah.
Josh Dennerlein (Senior Equity Research Analyst and Director)
One, I guess, you know, what, what's the rationale behind that? And then can you help, help us understand and reconcile that with, like, the cost-cutting progress? Just, just seems like-
William McMorrow (CEO)
Yeah
Josh Dennerlein (Senior Equity Research Analyst and Director)
... maybe that's ... Yeah. Anyway, thank you.
William McMorrow (CEO)
Yeah, that's a very good question. You know, we started in Japan in 1994 with no employees, and over a 7-year period of time up to 2002, we actually became, if not the first, one of the first U.S. real estate companies to ever go public in Japan. That was Kennedy Wilson Japan, which went public there. We sold almost all of our position in that company over the next couple of years after 2002. But that company continued to thrive, and it's currently owned—it's a private company owned by one of the large Japanese financial institutions. Outside of that business, we also owned almost 50 apartment units, mostly in Tokyo and Osaka. That turned into a very, very successful investment, and we sold that business in 2015.
And as, as luck would have it, we used the proceeds out of that to buy our 50% interest in Vintage Housing here in the United States, which at the time, just as an aside, had 5,000 units in it and now has 12,000 units in it. But we've always maintained very, very, very deep and strong relationships with many, many Japanese, large Japanese financial institutions and companies in Japan. And we have one existing joint venture in in the Bay Area with a major Japanese construction company. And then you might remember that in, the first quarter of this year, we closed our first multifamily equity investment with a very large Japanese, development company in Vancouver, Washington.
So what this has all led to is a kind of, I'd say, a reexamination of all these deep relationships that we've built over the last 30 years. The Japanese institutions are very global in nature. It's obviously no surprise to anybody that Japan is faced with, you know, a declining population at this point in time. We'll see how that all goes, but it is always been the case that Japanese companies, irrespective of where the yen is at, they want to invest on a long-term basis outside of Japan. So we made a decision really earlier this year to, I'd say, intensify our capital raising efforts there based on these long-term relationships. But to do that kind of business in Japan, you have to have a physical presence there.
And so we've opened, reopened our office there. I would also add, in this long-winded answer, that we've had several Japanese companies now that have come into our fund business, discretionary fund business, including one large Japanese company that came into our fund business, just a couple weeks ago. And so we've had real success raising capital there.
Matt Windisch (President)
I think one thing I'd add to that is just the team that we have covering that region were already employed by the company, so there's no, we didn't add employees or anything like that as part of this. So there's not a significant change in the G&A related to opening this office.
Josh Dennerlein (Senior Equity Research Analyst and Director)
Well, no, no, good background. Thank you.
Operator (participant)
Once again, if you have a question, please press Star, then One. The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead. The next question comes from Tayo Okusanya with Deutsche Bank. Please go ahead.
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Hello, can you hear me?
Matt Windisch (President)
Yeah, we got you.
William McMorrow (CEO)
Yeah, we hear you.
Matt Windisch (President)
Hello.
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Oh.
Matt Windisch (President)
Hi, I can hear you.
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Okay, good morning. I wanted to ask about the credit, the credit platform, and how you should think about, you know, the growth outlook for the business, just given again, if, if rates are coming down going forward, I mean, do you think that results in kind of more construction loans, as people all of a sudden want to start borrowing? Or do we kind of think about it as they become other sources of, you know, maybe more attractive funding for potential developers, and they kind of move towards a different product? Like, just how do we kind of think of how the business evolves in a, in a world where we have, you know, declining interest rates?
Matt Windisch (President)
That's a good question. I mean, we've, we've seen a significant slowdown in starts on apartment construction. And so what's happened for us is we've had a combination of, you know, lower number of people that are actually developing, but there's also a lot fewer financial institutions and lenders in the market. So the pie has shrunk dramatically from where it was three or four years ago in terms of the overall size of the construction lending market. That being said, we've, we've been able to capture a very sizable market share, just given, you know, that a lot of the traditional lenders are not currently active in the space.
I think with the prospect of rates coming down, a couple things could happen, and our thesis really is that you will see more people start to build, because the cost of building will be reduced because of lower interest costs. And also, you know, the value of these assets, once completed, should go up, and the takeout financing should be more attractive. So you should see a pickup in new starts for people building, you know, apartment buildings. At the same time, I think it's likely you'll see new entrants come into the market, given those factors. So our hope is that the market will continue to grow and we'll be able to maintain, you know, our strong market share. So I think it bodes well for us that the overall size of the opportunity will be larger.
And I think we've got a competitive cost of capital and a great team that has executed with these borrowers during times where others weren't there or stepping up like we are.
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Gotcha. Does it change profitability of the business? Because you're probably now going to be making loans at, at lower rates.
Matt Windisch (President)
It's not a-
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Or do you kind of get it?
Matt Windisch (President)
Right. It's not a significant change for Kennedy Wilson, because, you know, we're, we're putting up a relatively small amount of capital into the loans themselves, and, we're earning fees, based on the origination and asset management and servicing of the loan. So for Kennedy Wilson, it won't be a significant change in the return.
Tayo Okusanya (Managing Director and Head of US Real Estate Investment Trusts Research)
Okay. That's, that's, that's helpful. I'd, I guess that's it for me. Thank you.
Operator (participant)
The next question comes from Alan Parsow, with Elkhorn Partners. Please go ahead.
Alan Parsow (Sole General and Managing Partner)
Hi, guys, at all. I have two quick follow-up questions. One is on Japan and that area. And if you could, if there is a way for you to elaborate on the amount of funds you've been able to this point get into your fund development and different fund issues. And then two, if you could quantify your sale of the Spanish property and give us an idea of what you made, lost, or whatever on that property, and how much you should save from closing eventually that Spain office.
Matt Windisch (President)
Yeah.
William McMorrow (CEO)
Yeah. As far as Japan is concerned, Alan, I mean, we're in the, I'd say, early stages of raising capital, but we're having, you know, I'd say, very meaningful discussions with, I'd say, 12 major Japanese companies. The reference I-- if I didn't say the number, the reference I was making into our Fund VII discretionary, we've had $100 million of capital come from Japan. So this is early stages, and as you can see, we haven't, intentionally, in the last 12 months, we haven't deployed hardly any capital into the equity investment side of the business. We felt a very much better use of capital was to grow the credit business. The returns were just better.
But, you know, with these rates coming down, it's clearly gonna benefit the equity side of the business, both in terms of the valuation of our own assets, but also our ability to, you know, get positive leverage on acquisitions. And that was really the reason over the last 12 months, we've really barely moved the dial in terms of acquisitions of new equity-oriented investments. Oh, the overhead issue. You know, we have been very, very, very good, I would say, over the last 9 months of reassessing some of the overhead costs of the company. Repurposing people, repurposing places where we had people, but where we could use them better in a different location.
And so we've got further, I'd say, you know, another 5% to go in terms of... That's already identified and has pretty much taken place in terms of our overhead. But Spain, you know, it represents a real cost savings for us. I would say it's kind of in the order of about $1 million-$1.5 million a year.
Matt Windisch (President)
That's right, Bill. Yeah.
Alan Parsow (Sole General and Managing Partner)
And the amount of profit or loss from the sale of the property?
William McMorrow (CEO)
Yeah. Well, you know, you get your profit in two ways. We had very attractive financing on that property from one of the Spanish banks. And it was, you know, there was a significant excess cash flow from that property for probably the 5 or 6 or 7 years that we owned it. So the returns ended up being very good, but the most of the return really came from the distribution of cash over the time we held it.
Matt Windisch (President)
Yeah. So the third quarter impact from the sale itself is gonna be negligible in terms of a gain.
Alan Parsow (Sole General and Managing Partner)
Okay, great. Thank you.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Bill McMorrow, CEO, for any closing remarks. Please go ahead.
William McMorrow (CEO)
Well, thank you, everybody, for listening in today. We're very pleased with where we're at, and as always, if there are any other questions that you've got, any of us are available to talk with you at any time. So thank you.
Operator (participant)
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.